1 Accounting 200 – Exam 1 Review Chapter 1& 2 • Forms of business organizations & characteristics (Proprietorship, Partnership, & Corp.) • Financial Statements & the components & their interrelationships Income Statement Statement of Retained Earnings Classified Balance Sheet – including subtotal calculations Statement of Cash Flows Notes to Financial Statements & Auditor’s Report • FASB~ GAAP, IASB~ IFRS • Objective of financial reporting (& related fundamental qualities) Chapter 3 • Asset = Liabilities + Stockholder’s Equity (Balance Sheet equation) – calculating for unknowns. • Debits / Credits (know rules and effects on type of account) • Normal Balances of accounts • Analyze Transactions – how each debit and credit impacts the accounting equation and related financial statements • How failing to record an entry impacts the accounts and accounting equation • Preparing journal entries • Using T-accounts • Trial Balance • Distinguish difference from trial balance and financial statements Chapter 4 • Revenue Recognition Principle • Adjusting entries: Prepaid expenses (including Depreciation), unearned revenues, accrued expenses, accrued revenues Understand how a journal entry affects the accounting equation or financial statements and how failing to do adjustments impact the accounts and accounting equation. • Adjusted Trial Balance • Prepare financial statements from an adjusted trial balance • Closing process Permanent accounts versus Temporary accounts Result of closing process (what accounts still have balances?) Chapter 7 ▪ Fraud triangle ▪ Principles of internal control: establishment of responsibility, segregation of duties, documentation procedures, physical controls, independent internal verification, and human resource controls ▪ Cash reconciliation between Company’s cash account and bank statement, and related journal entries ▪ Sarbanes Oxley Act ▪ Eegee’s article2 Chapter 1 and 2 Pros Cons_________ Proprietorships Partnerships Corporations Financial Statements & How They Are Connected 1. Income Statement 2. Stmt. Of Retained Earnings 3. Balance Sheet 4. Statement of Cash Flows Solving for Ending Retained Earnings Using Accounting Equation If A = 6,000, SE = 2,000, L = ? If L ↑ 4,000, SE ↓ 1,000, then A?3 FASB _________________ Standards Board (____ standard-setting body) GAAP____________________ Accounting Principles (____ rules for financial reporting) IASB ____________________ Standards Board (________ standard-setting body) IFRS ____________________ Reporting Standards (______ rules for financial reporting) Objectives of Financial Reporting To provide useful information. Should have two fundamental qualities: 1. 2. Classified B/S (7 sections) 1. 2. 3. 4. 5. 6. 7.4 Chapter 3 Rules If A = 20,000, L = 7,000, CS = 5,000, Beg. R/E = 1,000, Rev = 12,000, Divs = 2,000, then what are Expenses? Normal Balances to Accounts Normal balance is the side where INCREASES in the account are recorded. Journal Entry Practice (Also ask yourself: How is accounting equation impacted? Which F/S’s are impacted?) 1. Perform service for cash 2. Perform service on account 3. Customer pays what they owe you5 4. Buy supplies on account 5. Buy printing for cash 6. Buy printing on account 7. Pay off A/P 8. Prepay rent 9. Issue shares of CS Chapter 4 Revenue Recognition- Example: Jan. 2nd ordered jumping castle. Jan. 25th party with jumping castle. Jan. 27th got bill in mail. Feb. 2nd paid bill. When does jumping castle company recognize revenue? AJE’s (Impacts on accounts & impacts if fail to record AJE’s) Deferrals6 Prepaid Expense (_________ before ________ recorded: insurance, supplies, advertising, rent, PP&E) Example 1:Initial entry: Dr. Supplies 15,000, Cr. Cash 15,000 -AJE for use of 5,000: -OR AJE if 8,000 of supplies remain: -If fail to make AJE: Example 2:Initial entry: Dr. Equipment 20,000, Cr. Cash 20,000 -AJE for 2,000 annual depreciation: Unearned Revenue (____________ before _______ recorded: season tickets, airline tickets, gift cards, client deposits) Example: Initial entry: Dr. Cash 10,000, Cr. Unearned Revenue 10,000 -AJE for earning 2,000: -OR AJE if 6K of unearned rev. remains: -If fail to make AJE: Accruals Accrued Expense (Exp. Recorded ________ cash paid: bills, interest exp., tax, salaries) Example: $700 of unrecorded salaries earned during last 3 days of period: -If fail to make AJE: Accrued Revenue (Rev. recorded ________ cash received: rent, interest rev., services)7 Example: Unbilled services of $500: -If fail to make AJE: Closing the Books Temporary Accounts Permanent Accounts TB and Adjusted TB Steps Chapters 7 What is the Fraud Triangle? Three factors contribute to fraud: 1) 2) 3) What is the Sarbanes Oxley Act? Enacted as a result of several corporate accounting scandals (Enron, WorldCom, etc.). Goal is to prevent more corp. accounting scandals. Applies to public companies & requires that they have internal controls that executives & board take responsibility for. Also must have independent outside auditor attest to adequacy of internal controls.8 Name the internal control activity defined below: ___________________________ Control best when 1 person responsible for a given task. Ex. 1 person per cash register drawer. ___________________________ Different people should be responsible for related activities (record keeping & physical custody, ex. Cash/Checks) ___________________________ Use prenumbered docs. & account for them. Forward source documents for accounting entries to acct. dept. ___________________ Safeguard assets with locks, passwords, alarms, etc. ___________________________ Records periodically verified by indep. employee & discrepancies reported to management. ___________________________ Bond employees who handle cash, rotate employees’ duties & require vacation, conduct background checks. Which of the above would have helped Eegee’s prevent the fraud described in the article? Prestige Co has the following reconciling information in preparing its May bank reconciliation: Cash balance per books, 5/31 16,050 Cash balance per bank statement, 5/31 26,700 Outstanding checks